Last Updated on
January 19, 2023
Launching a startup or small business is a serious exercise in risk-taking and risk management. Startups often fail for all different types of reasons. As a first-time entrepreneur and startup founder, learning about the past common mistakes other founders and founding teams have made can be a good practice in preparing for your journey.
Further, with all the technical, regulatory, and legal issues involved with creating a drug or therapeutic, it can be even more challenging to run a biotech startup successfully. The risks you face in the biotechnology industry can be, and often are, higher than what many entrepreneurs face in other sectors.
So if you’re anxious about making a mistake, know that you’re not alone. Countless founders and founding teams are wringing their hands in worry right now! (Okay, maybe we don’t know that for sure, but chances are it’s happening.)
Considering all that, we decided to compile some of the reasons biotech startups fail, common mistakes and pitfalls biotech startup founders can face, and how to avoid making those mistakes.
In this article, you’ll learn about the following:
As counter-intuitive as it may seem, preparing yourself for the possibility of failure can put you in a better position to succeed. Learning from the mistakes made by those who came before can lend experience and expertise well beyond what you already possess, equipping you for a more navigable future in the biotech industry.
Regardless of the industry, founders make mistakes all the time. However, one single mistake doesn’t typically lead to a company failing. Most of the time, a company can recover from a minor error and fix the issues that arise.
It generally takes several big mistakes for an early-stage biotech startup to fail. Some of the biggest reasons why a startup can fail include the following:
In some cases, the reason a company fails is unique to them. Maybe the founder hired a CEO or CSO who wasn’t as prepared for the role as the founder initially thought. When left unaddressed, a mistake like this can lead to several other managerial slips, eventually leading to the startup shutting its doors. Or perhaps it’s a mixture of technical issues involving the underlying science. Is it possible to pivot to another technology?
It could even be an issue with marketing or market need. If you don’t correctly conduct proper market research and identify a true need you can fill, the lack of market fit can sometimes lead to a startup’s failure if the business cannot pivot.
You will likely face clinical trial setbacks and FDA approval issues even with a strong management team, solid technology, and a marketing plan. Numerous therapies fail in clinical trials every year.
These hurdles are just one of the many reasons why the biotechnology industry and the life sciences are so unique and challenging.
Many things can go wrong with running a business, and countless mistakes founders can make. That said, some mistakes stick out for their commonality and include:
Unlike the reasons why startups fail, the mistakes you can make as a founder often can be corrected—knowing what other entrepreneurs have done before can give you a better chance of building your vision and getting your product to market.
Avoiding common startup mistakes in biotechnology isn’t easy. Just because you’re reading about it and understand the pitfalls doesn’t mean you will have it easy. Furthermore, it’s almost impossible to know every mistake that can happen.
Nonetheless, you can mitigate the risks of making mistakes with thorough planning and preparation, readying yourself and your team for the errors you know can happen.
Scientists with expertise in their field often founded biotech companies. Their technical background makes them well-suited to work on developing the company’s technology or product. However, it might not make them the best fit for a role like CEO. Sometimes a founder lacks the business experience needed to fill that role effectively.
If you don’t have the experience and expertise needed to lead the company, part of your job as a founder or co-founder is to look for a capable CEO whom you can trust to execute the company vision. Identify what you need in a CEO and set up a way to vet candidates. Ask for nothing but 100% from them because anything less than that can lead to failure.
Furthermore, it’s crucial that you do your best to hire a strong management team or establish a division of labor/roles among you and your co-founders. Who will be taking on what roles? Are there gaps in your and your co-founders’ knowledge and expertise that you can fill by hiring someone else?
Whatever you do, try your best to back the right people because the right people can help you weather the storms you’ll face as you try to grow your company.
One of the main reasons startups fail is that they run out of cash or fail to raise new capital. If you can generate revenue right now, it will be easier to keep the doors open as drug development costs are so high. Your chances of running out of capital significantly increase without outside investments or cash flow. However, raising money can be difficult for early-stage biotech companies performing extensive R&D. There aren’t many ways to generate cash, and many investors are still wary due to the risk of supporting a company without an approved product.
When it’s time to raise money from investors, whether they’re angel investors, venture capital firms, or more institutional investors or lenders, create enough flexibility to commit 100% of your time to fundraise.
To create this flexibility without sacrificing the progress of your business and product, establish which founder will focus their time on fundraising and which will continue to run the company if you are running your company with someone else.
Splitting responsibilities like this will allow one founder to fundraise full-time while the other or others can keep the business fully running. Doing so can increase your chances of securing financing because someone has the time to meet investors and pitch your business.
While setting aside time to fundraise is essential, it’s just as important to start building your company. Don’t wait for funding to begin important drug discovery and development. Waiting for funding rather than building your company can set you back further than you realize.
For example, if you’re waiting for your SBIR grant to come through before you start your startup, you are essentially building a private-sector extension of your academic research lab. In this situation, you need to do the work before anyone wants to invest in you.
Instead of waiting for funding, whether it’s through an SBIR grant or a VC investor, start working on your idea now.
Working on your idea can involve several tasks, including writing your business plan, performing market research, developing your R&D strategy, incorporating your company, finding or determining co-founder roles to fill, and establishing timelines and go/no-go decision points. You’ll be able to accomplish these tasks based on what money and time you have available.
It can mean creating your company structure, establishing an advisory board, and joining an accelerator or incubator lab. Use the capital you have now to push your R&D program forward.
If you don’t have (or can’t afford) lab space or equipment, consider outsourcing some experiments where you can. If you do have some lab space and need to outfit it, consider your alternatives to purchasing, such as buying used/refurbished equipment or leasing the lab equipment instead.
Do your best to avoid poor cash management. We’ve seen founders secure fundraising and then make the mistake of spending without considering the possibility of a project or new funding round taking longer than expected.
In other words, they overestimate the longevity of their funding or underestimate the time it takes to raise additional capital.
Along with time considerations, you have to manage your burn rate properly. R&D costs, employee wages, supplies, and lab equipment and space can eat up funding quicker than expected and drastically reduce your cash runway.
With a shortened runway, you might need more funding before you have a chance to raise a new round. Know your cash burn rate and runway, and set aside a funding buffer for when things take longer than expected.
One mistake founders can make is not clearly defining their business goals. Or, perhaps they’ve defined some business goals but have not aligned those goals with the management team or the Board of Directors (if they have a board).
If you can’t agree on company goals, strategies, milestones, capital allocation, or use of funds, you won’t know how to build the company. What is your destination, and how will you get there? Do you have clearly defined product development goals? How will you measure your progress or define success?
Having defined goals, you align your business’s mission with everyone on board will help you get behind you and can more easily overcome any obstacles or roadblocks along the way. Alignment can help the people who join your team understand and find motivation within your overall goals and vision.
Sometimes founders need to protect their intellectual property (IP) sufficiently. Not having adequate protection can be a huge problem if your company’s growth is based on some process or formulation that is intellectual property or if you “grow” under a brand and develop a name that’s associated with a product or service.
In the worst-case scenario, not protecting your IP could cost your entire company. In the best-case scenario, you’ll have to pay a considerable amount to either claim rights to the IP or let people know your name is the only name associated with the product or service you provide.
If others can use your name or formula, they can potentially steal your customers or dilute the value of what you offer.
For example, if you bought what you thought was Coke, and it turned out the soda was flat and had a funny taste, you would think their product isn’t as good (assuming you thought it was good, to begin with).
This is incredibly significant to biotechs because if another person or company develops products, medication, or tools using “your” IP, your value as an investment goes down in the eyes of a VC investor.
Have you defined whether or not there is a substantial market need or application for the product you’re creating? While the technology you’re using to build may be solid, will you be able to address a real problem that needs a solution now?
Some startups fail because the company needed to do their due diligence and adequately define a market need or align their technology with a need that was urgent or acute enough.
Instead, they aligned their technology and product with a less-than-ideal market application and, consequently, faced a lukewarm reaction to their development, with muted investor interest and limited support from their target audience.
Rather than focus on a single problem simply because you’re interested in or familiar with it, consider whether or not there are other problems you can address. Ones that the market needs or wants now. If you can identify those unmet needs, create a cost-effective solution for them that can be commercialized.
If you’re moving from academia to R&D in a startup environment and hiring out of university labs, you’ll want to consider the possibility of culture shock.
While academia prioritizes data generation and insights, industry R&D requires precise, replicable, and scalable processes for creating a product.
Creating systems for an organization can come down to implementing standard operating procedures (SOPs). Not establishing SOPs can lead to a disorganized and inefficient lab, which wastes time and money.
Do what you can to organize your processes and make it easy for anyone to replicate an assay or experiment using well-defined SOPs.
As a founder, you’ll need to be flexible. There will be countless moments when something you thought would work doesn’t.
Don’t make the mistake of believing you can save a drug despite what the data shows. Learn to recognize when to throw in the towel and pivot to something else that may work, whether it’s a new drug candidate, application, or business model.
Furthermore, you’ll benefit from being a flexible individual. Know that you might not always be the smartest in the room. It’s up to you to coach well but also be coachable. Recruit others to your vision, but remember that you might not always have all the answers.
Get involved in your community and put your business out there. Partnerships, whether they are official or unofficial, can often provide significant and impactful support.
If you don’t network, you’ll miss out on many opportunities to meet people who might be interested in your idea. Some of the people you meet might end up helping you in some way.
You can meet fellow scientists, entrepreneurs, investors, and manufacturers by attending conferences and industry meetups, whether in person or online. LinkedIn is an excellent way to start networking with others who work in the same industry or field and have similar interests.
These events allow you to ask questions, learn about how others deal with challenges similar to yours, bounce your idea or pitch off of others, and even set up investment opportunities.
Biotech entrepreneurs sometimes expand before they should. Or, they incorrectly identified the moment when they should expand.
Whatever the situation, one of the reasons startups fail is because they expanded too quickly when they weren’t ready to meet the demands that come with growing.
If you spread out to three different lab locations too early and can’t meet the demands of that expansion—paying rent, employee wages, increased supplies—you’ll find yourself in a difficult position—one where money is running out quickly.
To make matters worse, maybe you didn’t consider how much the expansion would eat into your runway. This means you have less time to raise additional capital. And securing funding is never a guarantee.
It’s smarter to plan expansion thoroughly and make gradual steps towards having multiple locations. In the meantime, you’ll do better to work out of, say, one central lab and an incubator.
Although a marketing strategy might not seem as critical to the success of a biotechnology company right now, creating a thoughtful strategy is much more important than many founders realize down the road. Startups trying to develop a new drug often need a proper marketing strategy or plan.
One of the essential parts of a marketing strategy in the life sciences is that it helps a business build credibility using clear messaging and branding. For obvious reasons, credibility is one of the most important things when selling a healthcare-related product.
But a marketing strategy does more than build credibility; it also defines your target audience and how you will get their attention, explain your product’s value, and turn them into paying customers.
Furthermore, it can also define how you will retain your customers, keep them happy, and turn them into advocates for your company.
If you haven’t made any mistakes, you’ve got a fresh slate. It’s a good feeling. Now is a better time than ever to learn from the mistakes of others because doing so can help your chances of success down the road.
While learning about the mistakes made in business doesn’t guarantee that you will be prepared for everything you will face (nor does it mean growth and success are assured), it does allow you to build up a theoretical understanding of the hurdles you’ll encounter, and how to solve them when they arise.
If you have made a mistake already, you might actually be in luck, depending on how you look at it and how significant it was.
While no one wants to fail, going through it and learning from that failure can be one of the best ways to course correct and grow. Business development often takes a more precise shape after you make a mistake, allowing you to identify what went wrong, analyze how you can avoid it in the future, and set up an action plan.